Why Avon Stock Lost 29% in May

What happened

Beauty product specialist Avon (NYSE: AVP) trailed the market by a wide margin last month. The stock lost 29%, according to data provided by S&P Global Market Intelligence, compared to a 2% increase in the S&P 500.

The drop added to a difficult period for long-term shareholders, who have seen their investment dive by more than 70% in the past three years.

So what

The catalyst for May's decline was an earnings report that showed little progress in Avon's recovery plan. Sales fell 1% after adjusting for an accounting change that pushed reported revenue up by 6%. Operating profit margin dipped, too, as the company's pool of sales representatives fell by 4%. CEO Jan Zijderveld called the results "unsatisfactory" and said they added urgency to Avon's turnaround discussions.

Now what

Zijderveld and his team are aiming to improve the company's competitive position after years of sluggish sales growth and uninspired earnings. Their immediate challenge is to increase the satisfaction of Avon's army of sales reps, which ideally will translate into growing representative figures in the coming quarters.

But that would mark just the first step in what's likely to be a comprehensive recovery plan that management should announce sometime over the next few months. Until prospective investors can get a detailed look at that initiative, they might want to watch this stock from the sidelines.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.